Kill Ash, named red demon. To find Ash follow the road past excaliber and at the end head north towards the blue man. He is on the mountian before the blue man and is surrounded by black panthers and little goblins. He is bright red, you can't miss him, around 20k, 50k (Loc does not apply to the New Frontiers expansion).

Ok, I know it says minimum level 45 but I have a 43.5 Paladin on Percival and I just bumped into this guy solo (10/21/02). I killed him and got the sword. So either the minimum level is lower than 45 or I got lucky.